A Beautiful Morning - After a Long Night, Gas-Weighted U.S. E&Ps See a New Dawn of Profitability

After posting huge pretax operating losses in 2015-16, the nine U.S. natural gas-focused exploration and production companies (E&Ps) we’ve been tracking returned to profitability in the first quarter of 2017. This reversal of fortunes in peer group performance was driven mostly due to higher natural gas prices, which ended a massive flow of red ink that had principally resulted from big reserve write-downs. Now, with higher profits and cash flows, these producers are ramping up their 2017 capital budgets and planning for long-term production growth. Today we continue our series on the financial performance of 43 U.S. E&Ps, this time zeroing in on companies whose hydrocarbon reserves are mostly natural gas.

We recently did an in-depth analysis of the ongoing transformation of the U.S. energy production sector in Piranha!, a market study of 43 U.S. E&Ps. Of that universe of companies, 21 focus on oil (60%+ liquids reserves), 13 are diversified producers (rough balance of liquids and gas reserves) and nine are gas-weighted producers (60%+ gas reserves). All major U.S. shale/unconventional plays are represented in the combined portfolios of these firms. After examining the 2017 capital spending plans of our three peer groups in a series of blogs, we reviewed the turnaround in financial results we saw across our 43-company universe in Recovery. Then, in Feelin’ Stronger Every Day, we cataloged the 180-degree turnaround in financial results for the Oil-Weighted peer group. Next, we drilled out into the performance of the Diversified E&P peer group in Back in Black. Today we turn our attention to the first-quarter 2017 financial results of the nine companies that make up the Natural Gas-Weighted peer group.

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Natural gas prices started declining in early 2014 and bottomed out at under $2/MMBtu in early 2016. Then, in mid-2016, the price started to rebound, rising to about $3/MMBtu, near where it stands today.  (Since July 1, 2016 the prompt month futures gas price has averaged $3.04/MMBtu.) The fortunes of gas-focused E&P companies are inextricably tied to the swings of the gas market, which on the downside led to crashing capital investment, cash flow and profitability. The rebound in prices, which started about 15 months ago, has led to a turnaround in company fortunes, which — along with increases in Appalachian pipeline and midstream capacity (see In a Northeast Minute) — triggered a strong rebound in capital spending, which in turn will help this group of gas-focused E&Ps continue its streak of production gains.  

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